Frances Katzen, one of New York’s top luxury real estate brokers, had a good start to the year. Then the coronavirus struck.
Within weeks, Ms. Katzen saw $ 80 million in sales evaporate as the pandemic locked the city out. Since then, she has recovered some, including a $ 20 million contract for a downtown penthouse that closed last week. But most of the buyers fled.
“The sky has fallen,” said Ms. Katzen, a residential broker to real estate agent Douglas Elliman. “Here we are.”
For developers in New York, the fear is that a prolonged end to the pandemic will not only scare potential buyers, but also encourage those who have already concluded agreements – but have not yet concluded – to move away. This, in turn, could encourage lenders to use promoters while developers lag behind the sales milestones set out in their loan agreements.
“There is going to be a world of pain,” predicted a developer from New York.
Others hope the pandemic will abate soon and the market will rebound with pent-up vigor later in the year. It may be more a question of science than real estate.
In the meantime, many typical buyers of luxury condos have themselves been affected by the market turmoil. A potential buyer of a cooperative apartment in the Upper East Side has had his offer rejected in recent days, according to several brokers, after their finances no longer met the standards of the cooperative.
The virus struck just as the New York luxury market appeared to be picking up after a multi-year crisis caused by an oversupply, as well as the disappearance of Chinese and Russian buyers due to geopolitical tensions.
The developers were also grappling with an increase last year in the city’s so-called home tax, as well as other tax changes. Several lowered prices by 10% or more in the fourth quarter and activity increased in the new year.
According to Core, a New York real estate agent, the total number of sales in Manhattan in February was 54% higher than a year ago, making it the strongest February since 2010.
But with March came the lockdown to curb the spread of the virus, with New York halting all but essential construction projects. He also prohibited visits to properties. This restriction was later lifted – although few sales agents or assessors have shown a strong propensity to risk their health in the midst of a pandemic. If they can afford it, many have left town for second homes elsewhere.
“You are not allowed to build and you are not allowed to sell … so things are going well!” A property manager joked.
Garrett Derderian, the author of the Core report, said sentiment is likely to worsen as gross domestic product and the number of unemployed are reported in April and May. Ultimately, he said, the duration of the crisis would determine the extent of the damage – to both the real economy and the city’s real estate market: “That’s the million dollar question dollars: how long will it last? “
According to Katzen, a few opportunistic buyers have braved the market in the hope of finding a good deal. But many others have stayed away, she said. “People follow people,” she said, “and it’s not good to spend money right now.”
For developers, who are generally highly indebted, the inability to complete construction or reach agreements could be catastrophic: sales contracts usually contain clauses that allow buyers to leave with their deposits if a building has not been completed within a certain time. This date is known as the “outside date” and is applied by the New York State Attorney General.
Even before the coronavirus, several New York luxury projects were years behind. The labor and equipment shortages created by the construction boom have slowed construction, as has the complexity of building the new generation of “super tall” towers that have reshaped the skyline of Manhattan. over the past decade.
One such project is 111 West 57th, where prices for the 46 units range from $ 17 million to over $ 50 million. Unless extended, its exterior date is in weeks, according to people informed about it.
“Just about any luxury condo in New York – whether it’s complete or nearly complete or partially finished – it’s in the same boat right now: it’s frozen,” said Kevin Maloney, whose Property Markets Group is one of the developers of 111 West 57th.
Maloney, a seasoned developer, went through the savings and loan crisis of the late 1980s and early 1990s, the September 11 terrorist attacks and the 2008 financial crisis, among other market shocks . He believes that buyers, developers and lenders will eventually have to find common ground – but only after the full extent of the crisis has become clearer.
Even so, Mr. Maloney predicted that there would be lasting damage: “There are going to be a bunch of failed projects in New York.”
Just down the street from 111 West 57th is another super grand known as the Central Park Tower which represents one of the largest luxury property bets in the city. The tower has 179 units, which its developer, Extell Development, was struggling to sell even before the crisis, according to brokers.
Extell declined to comment on the pace of sales. Last week, he made a subtle, but perhaps revealing gesture, by posting lists of the building on his website. Typically, these high-priced sales are handled privately.
“They’re getting desperate,” said one broker.